The German economy in July 2017 – Peak German Economy?

Although we will see in the following that not all but most indicators point to another record month of July (thereby topping June), there are at least some minor signs of trouble ahead – which still can be resolved easily, though. Hence, let’s take a deeper dive into the data:

The German DAX saw the second month of a losing streak in a row, closing at a three-months low: After closing at 12,325 points on 30 June 2017, the index closed at 12,118 points – thus losing another 207 points (compared to 290 points the previous month) in the course of the month. This is the second losing month for the DAX now (though this might be explained with the various allegations against German carmakers (cf. below) – I hope we do not see a “triple” or “hattrick” in September…

After a slight setback in April, German exports in May 2017 (latest available figures) grew even stronger than anticipated: After falling back to Euro 101bn in April they reached Euro 110bn in May 2017, which makes for a hefty rise of over 14% on a YoY-basis. In tandem with the exports, GermanTarget-2-balances for June grew by another Euro 3bn from the previous Euro 857bn in May to over Euro 860bn in June 2017 (cf. here).

Due to the summer season, the German unemployment-rate did not hit another low in June, but slightly increased from 5.5% in June to 5.6% in July 2017, the number of unemployed rising by 45,000 to 2.518m (MoM) but shrinking by another 143,000 (!) on a YoY-basis. Given the refugees now getting in the job-market and the summer-season as such, this figures are marvelous!

As foreseen in my last “monthly”, German inflation further increased to 1.7% in July 2017 (MoM) – mostly due to an increase in food-prices (which in turn are increasing due to abysmal harvesting data for Germany).

And – unbelievably – insolvencies for corporations further decreased by 16.7% in April 2017 (YoY-basis). Although it is obvious that the number of insolvencies will eventually decrease after the recession ends and the economy starts to boom again. However, this “recession” in insolvencies is outstanding (in depth and duration) – and might also be attributed (at least in parts) to the ECB-policy of ZIRP (Zero Interest Rate Policy) and QE (Quantitative Easing). This policy might have led to a “zombification” of certain companies – at least the number of articles on this subject are increasing (cf. here).

Also, the German (Industrial) Purchasing Managers’ Index (PMI) decreased from 59.6 points in June to 58.1 points 2017. There against, the Ifo business climate index reached another all time high, further rising from 115.1 points in June to 116.0points in July 2017 (from the press-release: “Sentiment among German businesses is euphoric. The ifo Business Climate Index rose from 115.2 points (seasonally adjusted) last month to 116.0 points in July, hitting a new record high for the third month in succession. Companies’ satisfaction with their current business situation reached its highest level since Germany’s reunification. Their short-term business outlook also improved. Germany’s economy is powering ahead.”; no further comment necessary). The ZEW Indicator, though,lost 1.6 points from 88.0 points in June to 86.4% in July 2017.

Hence, overall, another incredibly strong month lies behind the German economy – one small sign of coming trouble (to spoil the good news a little) might be the drop in the DAX, which stands against all-time highs of other stock-exchanges. These might be the first effects of “Diesel-Gate” and the cartel-allegations against major German car-makers. We will see, how this story evolves, but let’s hope that this sign was only a minor detour and not the sign for “Peak-Economy” in Germany.